email

Enter Your Information Below To Receive Latest News And Articles

Please Enter Your Email Address:

By opting in you agree to our Privacy Policy. You also agree to receive emails from us and our affiliates. Remember that you can opt-out any time, we hate spam too!

Top

Top Investors Forum

  /  News   /  Bank of England hikes rates in first back-to-back rise since 2004

Bank of England hikes rates in first back-to-back rise since 2004

A passageway near the Bank of England (BOE) in the City of London, U.K., on Thursday, March 18, 2021.
Hollie Adams | Bloomberg | Getty Images

LONDON — The Bank of England on Thursday imposed back-to-back interest rate hikes for the first time since 2004 and began the process of quantitative tightening.

Markets had broadly expected the 25 basis point rate increase, which the Monetary Policy Committee voted for unanimously and which takes the main Bank Rate to 0.5%, as the central bank strives to contain soaring inflation.

The Bank fired the starting gun on rate rises in December, hiking its main interest rate to 0.25% from its historic low of 0.1%.

Since then, data has shown U.K. inflation soared to a 30-year high in December as higher energy costs, resurgent demand and supply chain issues continued to drive up consumer prices.

The Bank of England on Thursday raised its inflation forecast to an April peak of 7.25% from the 6% projected in its December report.

Meanwhile, the labor market recovery has remained robust, with 184,000 staff added to payrolls in December, putting the total estimate of payrolled employees 409,000 higher than its pre-Covid level.

The Bank of England stuck with past guidance to the market to expect quantitative tightening once the Bank Rate reached 0.5%, reducing its corporate bond purchase target by ceasing to reinvest maturing assets.

In a note Thursday, Berenberg Senior Economist Kallum Pickering suggested that the market may be caught out by the QT announcement, despite it being a “sensible” course of action.

“A gradual normalisation of interest rate markets should not be a threat to the UK economy or its financial and banking system,” Pickering said.

However, he acknowledged that the market may be surprised by the timing or potential scale of the announcement, particularly as some ?25 billion of gilts are due to mature in March, against a total holding of ?875 billion.

“If gilt yields overreact and spike on such news, U.K. equities could pull back. We would view this as an overreaction. Still, the risk of a misperceived hawkish signal looms large,” Pickering said.

Post a Comment